Apple has been one of the most successful brands in China, largely due to its adroit negotiating with PRC authorities. Market access, however, has come at a cost. Apple, like many other MNC brands in China, has consistently given ground on its core values – particularly in terms of privacy safeguards and data protection. Apple has routinely put its China user information under the control of Chinese government agencies and submitted to Chinese authorities, even as the company was mounting sophisticated legal challenges to government policies in the US and Europe.

Last week’s announcement that Apple would be removing 3rd party VPN providers from it’s Apps Store came as a surprise to many, but Beijing had been hinting that they planned to curtail the use of VPNs. Amazon has made a similar announcement, and it seems clear that this is the latest “new normal” in the world of Chinese internet.

Time is a strategic variable for Chinese negotiators, who never take their time is a strategic variable for some negotiators eyes off the prize. Access to user data was always a key demand for Beijing, but a Chinese negotiator thinks nothing of waiting years to maneuver into position. In the end, they will force you to make concessions, if only to preserve that hard won relationship.

Post-deal negotiation. Westerners feel that a deal is done when both parties sign on the dotted line. After that, all terms are sealed and everyone has to live with the deal they signed. Chinese negotiators think this is just nuts. A deal is never done while the relationship is still intact. That contract you just signed is valuable, but only as a record of one agreement between a 2 or more individuals at a specific time – under specific circumstances. Contracts don’t compel performance when it’s the government or any other powerful counterparty. Westerners put way too much faith in contracts overseas.

Watch the agenda. Apple didn’t have a political or social agenda. Beijing did. China ultimately recast Apple’s deal to include the deal points that the Chinese government cared about most. While this issue may have been a deal-killer in 2008 (when Apple first entered China), the market is simply too important for the company now.
Millennial Negotiators Beware

Younger negotiators have a tendency to over-estimate their “no-deal option”. They tend to believe that they have more alternatives than they actually do, and that their downside is limited. They also overestimate the power and attractiveness of their resources.

Negotiators that apply their own valuations, methods, and priorities in international situations do poorly.

Your International Negotiating Checklist:

The Millennial Negotiators guide to international negotiation

A) Who are you really negotiating with? Who is really calling the shots? How closely aligned are they with the government?

B) What is their agenda? What do they care about? It’s not mysterious. They are telling you. Other westerners are telling you. People tend to hear what they want to, and disregard the rest. Cross-cultural negotiators have to figure out the other side’s perspective.

C) What are the balances of power – pre-investment and post-investment? Everyone will love you until the money transfers or the technology is shared. After that you’re just in the way. What’s the new balance of power when your money is in his bank? Agenda setting is part technique and part power. When you are negotiating with a foreign government, the power part is quite noticeable.

D) What’s your new ask? Once the deal is signed, the negotiation continues. Are you going to dig in your heels and futilely try to resist, or are you going to show up at the renegotiation with your own list of demands/requests?

E) What’s your new bottom line? Some negotiating cultures take a very long view, and it’s likely that your agenda has changed over time. Make sure your strategic goals haven’t evolved beyond your original negotiating agenda.

Final World:

International negotiators — especially those of the millennial persuasion — have to prepare responses to issues they consider “off the table”. Redline limits tend to melt away pretty fast in international negotiation.

Written by an American for Westerners negotiating in China, “The Fragile Bridge” dispenses with politically correct euphemisms and ivory tower pseudo-psychology. Knowing which 1,500 year-old philosopher uttered what esoteric phrase won’t help you safeguard your assets or keep your JV operating, but learning from the lessons of dozens of successful Westerners who have survived the China challenge just might.

3 Takeaways from the Case of the Vanishing Coal Ships

1) It’s the implementation, stupid. Chinese like to have parties and press events around the signing of a big document – but for international partners, the real time to celebrate is when the implementation starts. Beijing had already decided to refuse NK coal back in Feb, but implementation now seems to be part of a “welcome to the new job” gift basket for the US President. Don’t worry, though. China got a lot in return. Expect to hear much less about currency manipulation in the future, and charges about dumping may quiet down for a time (though they’ll be back).

2) Chinese think they can get you to pay for things they already wanted to do anyway. It works. Usually NK is a big headache for Beijing, but now Washington is paying them to be part of the solution. This same scenario plays out all the time in business. You look to your Chinese partners to provide a solution to a specific business problem, and end up investing in their plant and/or training their people. In the 90s & 00s, Chinese factories wanted to climb the tech ladder and improve quality, so they allowed Western engineers to educate Chinese technical teams. Now Chinese firms will permit overseas partners to improve branding, customer service, and international management. It will always be YOUR idea to help them reach their own strategic goals – and there will always be a way for you to pay for it.

3) Manage the deliverable mismatch. Every time a Westerner comes to China, he or she faces the same dilemma. You need vaguely defined, open-ended strategic help in the long term (developing markets, pacifying super-villains) in exchange for tangible, real concessions right now. You pay, buy, hire, invest, or transfer assets FIRST, and then the other side performs their side of the deal. This creates more risk in China than many western negotiators seem to realize – at first. Once your assets have been transferred, you are in a much weaker position.

We may never know the exact nature of the proposals and concessions that Xi and Trump negotiated, but we do know this much:
Long after the dramatic animations of cargo ships changing direction are forgotten, the CCP negotiators will still be meticulously defending and redefining every point they won in Palm Beach last week.

Written by an American for Westerners negotiating in China, “The Fragile Bridge” dispenses with politically correct euphemisms and ivory tower pseudo-psychology. Knowing which 1,500 year-old philosopher uttered what esoteric phrase won’t help you safeguard your assets or keep your JV operating, but learning from the lessons of dozens of successful Westerners who have survived the China challenge just might.

]]>http://chinasolved.com/2017/04/3-negotiating-takeaways-nk-coal-boat-maneuver/feed/02787Three Negotiating Issues to Watch at the Xi Trump Meetinghttp://chinasolved.com/2017/04/negotiating-issues-watch-xi-trump-meeting/
http://chinasolved.com/2017/04/negotiating-issues-watch-xi-trump-meeting/#commentsTue, 04 Apr 2017 12:37:53 +0000http://chinasolved.com/?p=2777The upcoming Xi – Trump meeting is the first face-to-face sit down between the two leaders. The US side has been clear about what it wants from China, but it’s not quite as clear what it plans on offering. Don’t get distracted by the background noise like Tillerson’s visit or uninformed “princeling” gossip. This is all about the relationship between 2 leaders.

The Trump story is entitled “Make America Great Again” – but the plot is a muddle of victimhood (China is bullying America) and bravado (unilateral action on North Korea). Xi Jinping’s narrative is “The Chinese Dream” which juxtaposes a need for global respect with insistence on non-confrontation – all wrapped around one of the largest projections of power since the early Ming (OBOR, 9 Dash Line).

Which story will end up having greater impact over the next 4 years? We’ll have a much better idea after this week’s Xi-Trump meet at Mar a Lago – Trump’s ultraluxe resort in Florida.

Here’s a handy cheat-sheet for assessing the key issues

Process & Protocol

Asks and offers

North Korea

Process: The who, what, where, and when of negotiation.

What is this negotiation about? This first sit-down seems to be about everything and nothing. The new US admin is being incredibly ambitious and hopelessly vague at the same time. For the US, this meeting will be a mash-up of relationship-building, trade, currency, North Korea, South China Seas, Taiwan, One China policy — and possibly new hotels. The White House seems to believe that it can tick off the Trade and Regional Security boxes in one two-day session. The Party guys in Beijing have a narrower agenda – they want to see Xi get in and out without a humiliating incident that could doom one of China’s most important global relationships.

The choice to set the first meet at a luxury golf course was either bold or tone-deaf. Xi, who has made his name as an anti-corruption populist, has outlawed just this kind of resort in China. Chinese leaders are known to appreciate ceremony and protocol – the last meeting Xi had with Obama at Sunnlyands got more headlines for the casual tone than for substance. It will be interesting to see how Zongnanhai sensibilities react to Palm Beach gilded opulence. The international press likes to dwell on Xi’s princeling pedigree, but they gloss over his Red Guard survival skills. His generation still see themselves as tough-as-nails pragmatists.

Lots of speculation about Jared Kushner and the princeling back-channels. Tillerson seems to be absent – at least for the planning stages – so it’s a safe bet that his promise of “non-confrontation” means a lot more in Beijing than it does in DC. Don’t get pulled off-focus by the headlines – the only relationship that matters is between the leaders.

If this meeting goes poorly,the lack of a formal bureaucratic backstop puts the US-China relationship in jeopardy.

Asks and Offers.

We are pretty clear on what Washington wants – better trade terms, an end to predatory dumping practices, and a neutralized Pyongyang. The question is –what are we offering? Or put another — what does China want from the US? Unfortunately, the US has already played away three big cards – the TPP, Tillerson’s acceptance of CCP “non-confront, mutual-power” language, and an early visit for Xi. It’s been a pretty good honeymoon for Beijing, and it shouldn’t be too surprising if the Chinese side is satisfied with the status quo. Remember those competing narratives: “America is no longer a great nation” (according to Trump), while China needs to focus it’s efforts on making its dream a reality (according to Xi).

There are 3 conditions to a productive partnership in China:

The Chinese side has to believe they’ll do better with you than without you.

The Chinese side has to believe they’ll do better tomorrow than today.

The Chinese side has to believe they’ll do better than you.

So the question is — what does the Chinese side think they’re getting from this negotiation? Chinese negotiators are famous for demanding real concessions in the short term in exchange for vague promises to be delivered down the road. If the US elevates China to “equal global partner” status in exchange for vague promises to try harder to manage Pyongyang (while still insisting that there is little they can do), then it bodes ill for the future of the US China relations.
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Written by an American for Westerners negotiating in China, “The Fragile Bridge” dispenses with politically correct euphemisms and ivory tower pseudo-psychology. Knowing which 1,500 year-old philosopher uttered what esoteric phrase won’t help you safeguard your assets or keep your JV operating, but learning from the lessons of dozens of successful Westerners who have survived the China challenge just might.

]]>http://chinasolved.com/2017/04/negotiating-issues-watch-xi-trump-meeting/feed/12777The Future of US-China Commercial Relations: Welcome to the Multiconomyhttp://chinasolved.com/2017/03/future-us-china-commercial-relations-multiconomy/
http://chinasolved.com/2017/03/future-us-china-commercial-relations-multiconomy/#respondThu, 30 Mar 2017 21:02:50 +0000http://chinasolved.com/?p=2768Takeaway – Established Western brands will continue to defend their global leadership positions for a while yet, but Chinese corporates are taking control of growing niches and new categories. Look for Chinese entities to disrupt industries through enforced localization and substitution – not head-to-head competition.

Welcome to the Multiconomy

Phase 1: Frenemies on a Glass Bridge

The status quo of US – China commerce can best be described as frenemies who need each other more than they like each other. Up until now, both Chinese and Western commercial systems have been multi-faceted and opportunistic. National policies have been one of many inputs in business decision-making.

This situation can be characterized as brittle, but not necessarily fragile. Think of our existing system as a strong glass bridge. It’s very stable – right up until the moment it starts to crack. Then it can no longer support its own weight, but is very difficult to repair.

Market observers who look at the global system don’t see the cracks in the bridge yet, because Chinese brands have done a poor job of penetrating major international markets. The threat to incumbents (i.e.: Apple, GE, Boeing) is on the margins. China isn’t going global in the near term – but it will go regional. OBOR (one belt, one road) is an effort to revive and revitalize the old Silk Road trade network, and will take Chinese businesses into Central Asia, the Middle East, and South East Asia. The 9 Dash Line formulation is already projecting PRC influence across the South China Sea – and intensifying its connections with the vital ASEAN economy.

The assumption has been that the US and, to a lesser degree Europe, would continue to dominate markets, technologies, and entire industrial categories. In the near future, the global market will become more fragmented & polarized. The idea of “global brands” has been tested over the last decade or two, but going forward the concept of regional brand will become more common. Chinese corporates will benefit from national policies as African, Middle Eastern, and Asian consumers become more comfortable with emerging substitutes to traditional systems. Boeing and Airbus will continue to dominate the aircraft market, but entire regions will shift over to high-speed rail systems designed and operated by Chinese corporate/state hybrids.

Look for a world economy characterized by different industrial standards. Americans will fly; Africans & Mid Easterners will ride. In NY and LA, Apple will compete with Google to control mobile payments. Beijing and Bangkok consumers will weigh the benefits of Alipay vs. Tenpay.

In the near term, the biggest threat to global brands will be substitutes – not competitors. US and Europe won’t necessarily set industrial standards or be the natural brand leaders in all categories. The US will maintain leadership and unify specific markets such as services, media, and semiconductors – but will gradually lose ground to Chinese innovators that have local government support (both within China – and PRC client states).

Phase 2: Deglobalization and Enforced Localization

Beijing will accelerate the development of the multiconomy by fragmenting and controlling categories where it can. We have been witnessing this process for over a decade. Chinese consumers have already grown accustomed to:

Alibaba, not Amazon

Baidu, not Google

WeChat (Tencent), not Facebook

DiDi, not Uber

Chinese companies, shielded from global competition in their home markets, are already expanding regionally on the heels of government officials negotiating FTAs and economic aid packages. Look for Beijing to extend this “fragment & localization” process to more and more product categories.

Phase 3: Systematic Substitution

China will define or lead other categories – especially those ignored or rejected by the US. As many leading members of AmCham and European Chambers have been warning for years, this is a concerted effort on behalf of policy-makers, regulators, state-owned enterprises, and private Chinese corporates. Now that they’ve achieved critical mass within PRC’s own borders, the same coalition is finding it very effective to export this economic system to neighboring countries and recipients of Chinese foreign aid.

China’s state-private partnership are already making progress at exporting their standards in the following categories:

Maglev & high speed rail

Infrastructure

Drones (for consumer use)

Green energy production

Stem cell & genetic research

Quantum computing

China isn’t likely to displace Disney or Ford or McDonalds or Nike in the near term. But a new generation of global consumers may very well ride in Chinese rail cars along Chinese-built roads to a Chinese owned mall, where they’ll use Chinese payment systems to buy their Happy Meals and watch their fairy tales.

Next: How international millennial workforce can profit from the multiconomy.

Written by an American for Westerners negotiating in China, “The Fragile Bridge” dispenses with politically correct euphemisms and ivory tower pseudo-psychology. Knowing which 1,500 year-old philosopher uttered what esoteric phrase won’t help you safeguard your assets or keep your JV operating, but learning from the lessons of dozens of successful Westerners who have survived the China challenge just might.

US Secretary of State Rex Tillerson made his first official visit to China last weekend, and the White House probably sees it as one of the bright spots in a rocky transition. His Beijing hosts, however, will view the meet as a major step towards their goal of regional hegemony and global respect. Like many western execs before him, Sec. Tillerson doesn’t seem to understand what the Chinese believe he’s agreed to.

This was how the new Sec of State described the US China relationship in January:

We’ve seen it before. The Chinese side raises their glasses of Mao-tai and proposes a long relationship of mutual understanding and joint cooperation. The western side “gambei’s” and then makes their own polite toast about “long term cooperation, success, and prosperity”.

Now, at this point the westerners feel they are done with the preliminary small talk, and are ready to begin the opening phase of the REAL negotiation.

The Chinese side feels they are running the new partnership, co-own the intellectual property, and will make all substantive decisions about operations, hiring, and distribution.

5 lessons from Rex Tillerson’s China visit:

Manage the agenda, and then focus on individual deal points.

Tillerson followed western negotiating protocol by focusing on the key negotiating goals he wanted to achieve – most likely North Korea, auto-tariffs, and balance of trade issues. But for Chinese negotiators, there is always a larger agenda. Too many western executives fighting internal deadlines and hoping to satisfy their HQ sacrifice big-picture strategy for short-term deliverables.

Watch the timing mismatch. Don’t make real concessions now for longer-term promises.

Tillerson seems to have backed away from his earlier tough line on the South China Sea and conceded to PRC demands over “respect for core interests” in exchange for some vague promises about reigning in North Korea. He has mad significant concessions RIGHT NOW for a possibility of compensation at some point down the road. This is a common dilemma for western negotiators, who are often called on to invest real money and transfer actual intellectual property today in the hope of expanding access to the Chinese market later.

Avoid the slippery slope of concessions. Once you give in it never ends.

The US and PRC will certainly have trade disputes and frictions over the next four years. But from here on in, Beijing will refer back to the to the principles of ‘no confrontation, no conflict, mutual respect, win-win cooperation’ that the Secretary pledged in his first official visit. For Beijing, the main negotiating challenge will be to spin the meaning of “mutual respect” and “cooperation” – and it will surprise no one that these vague concepts will be applied to new islands in the South China Sea, anti-dumping suits, and most of all – to what the PRC likes to call “megaphone diplomacy”.

Style and symbols count in China much more than in the West.

When the Chinese talk about “core interests” and “mutual respect”, they have very specific ideas in mind. Every time an American entrepreneur or German engineer raises his glass in a toast to “mutual cooperation”, he cracks opens the vault protecting valuable intellectual property. Western negotiators believe that contracts will define all substantive terms to their new partnership – but the Chinese side always comes back to “principles of understanding”. As a negotiator, it is your job to get a clear understanding of exactly what the Chinese side wants, and what your side can expect in return. Be polite and amicable when you discuss these issues – but be firm.

You’re in the same boat – but who is the captain and who is the crew?

It’s relatively easy to get a Chinese negotiator to agree in principle to a cooperative partnership. Both sides tend to walk away thinking that they will have the power and authority to protect their interests and further their positions. In practice, however, Chinese tend to feel that they will call the shots on issues pertaining to China.

When you negotiate with a Chinese counterpart, take the time to build the relationship, set the right agenda, and uncover his true goals. A quick negotiating win in China should raise warning flags.

Learn from the expensive mistakes of others
]]>http://chinasolved.com/2017/03/5-negotiating-lessons-sec-state-tillersons-beijing-trip/feed/32764The New CEO in Asiahttp://chinasolved.com/2017/02/ceo-asia/
http://chinasolved.com/2017/02/ceo-asia/#respondTue, 21 Feb 2017 05:04:17 +0000http://chinasolved.com/?p=2749We’ve seen this before. A new CEO with limited China experience introduces himself to the international business community with toughChina policy can leave you between a rock and a hard place.

talk and big promises about China and the rest of Asia. Then reality rears its ugly head.

The new US administration is doing what new US senior managers in China do best – sending conflicting messages, missing opportunities, and making sweeping pronouncements that are just about impossible to implement.

What can we expect moving forward?

Expect to watch the needle swing back and forth between Partner and Competitor pretty sharply for a while yet as the new trade bosses find their footing. Here are the potential flashpoints you should be watching.

Yes, the Taiwan card has been played, but you can expect to see it massively overplayed at least once again in the near future. The present administration has probably forgotten the Taiwan call & tweet , and is hoping that the tough talk on North Korea will amount to little more than a photo-op. And that’s your problem(s).

What are your problems?

Western managers in China (or with China responsibility) are stuck in the middle between two massive, shifting forces – The Washington trade apparatus and Chinese business.

The locals are judging you against the whole emerging picture — but mostly the bad stuff.

Meanwhile, your own HQ is acting like they’ve solved everything (even the stuff you didn’t think needed fixing) and made a huge concession (by stepping back from a potential policy blunder – this time it was the One China Policy). So now it’s all on you if existing deals or new business go south.

Dealing with a new China CEO – even if he is the POTUS:

1 Just business – not politics. When a new administration comes in, there are two operational problems (for you, the front-line manager).

The content of new policies and trade regulation

The implementation and rollout of new policies.

The first one is political. For the vast majority of you, politics just doesn’t help you close the deal. They guy sitting across the table may agree, not care – or get very offended very fast. It’s not worth the risk. Part of the business is managing your relationship with your business counter-party in China.

The second is opportunity. The person who understands the mechanics and compliance procedures of new rules and policy is going to provide a valuable skill.

2 Don’t commit to anything. When things at the top are still shaking themselves out, you don’t win by being the big-pic speculator. You win by being the stable, steady, go-to guy.

3 Don’t be a cheerleader – or a dedicated detractor. Your policy? Break 2016 earnings results. The policy of the guys at the top – far away and out of the loop? Not clear yet. We’ll see.

It pays for you to be an expert at navigating or monetizing the policy shifts – not at explaining the ideology or reasoning behind it. When policy is shifting, you want to become a technical specialist in your area and familiar with the nuts & bolts of how any new policy may affect the deals you are working on.

4. It’s going to be bumpy. New CEOs get paid for biting off more than their organizations can chew – but they’re doing that across the board and around the world. In your China op, you’ll find that there will be too much attention one minute, then long stretches of neglect. Prepare for contradictory messages and policies. Stop and start. Two steps forward, one step back, 17 steps sideways. Be ready by prepping your Chinese counter-party-in advance for a confusing newsfeed and packaging your own offering as safe and stable.

5 Don’t accidentally switch sides. Throughout the 90s and 00s, MNCs with big financial interests in China were the most effective voices lobbying on China’s behalf in Washington and with NGOs. They knew what they were doing (or thought they did) – but a danger is that front-line managers and negotiators often end up doing the same thing by accident. If you are based in Asia or have interests in an existing China project, you are going to find yourself doing most of your negotiating INTERNALLY – with your own HQ. It’s easy to end up aligning with the Chinese side against people in your own organization. The danger here is that the Chinese side will forget quickly – your own people will not.

Written by an American for Westerners negotiating in China, “The Fragile Bridge” dispenses with politically correct euphemisms and ivory tower pseudo-psychology. Knowing which 1,500 year-old philosopher uttered what esoteric phrase won’t help you safeguard your assets or keep your JV operating, but learning from the lessons of dozens of successful Westerners who have survived the China challenge just might.

Some westerners are pushing back against the idea that we are facing the risk of rising trade barriers or a breakdown in orderly trade regimes. Their logic is that, “The US has a lot of levers, and we can assert our rights without necessarily sparking a trade war that the Trump Administration doesn’t want.” Not wrong, but it makes the dangerous assumption that trade relations are going to be something Washington stays in control of.

Trade frictions almost always take on a life of their own due to a single inconvenient point: Both sides in a dispute get an opinion. If you don’t know the other guy’s point of view (POV) then you have absolutely no control over the final result.

Chinese negotiating POVs

Chinese negotiators tend to look at a few factors when assessing counter-party.

Strong vs. Weak.

Chinese decision-makers don’t draw that much of a distinction between strength and intelligence/experience. They wrote the book on asymmetrical tactics, and don’t feel that short-term imbalances of material or technology are deal-breakers. The new US admin is getting points for certain types of strength – at least online. Trump looks decisive, effective, and rich. The question in China (and elsewhere) is if there is a method or strategy behind the posture.

Verdict: This category is Trump’s to win or lose.

Stability vs. Immaturity

China fears chaos the way Kansas fears tornedos. Disorder is the Chinese code word for destruction, famine, and invasion. Inability to maintain order is politely labeled “immaturity” – but it is viewed as a threat. Chinese bosses like quiet informal deals, little if any publicity, and no surprises.

Verdict: This hasn’t been great for the new administration.

Collaborative vs. Selfish

The real meaning of being cooperative and a “team player” is accepting the Chinese agenda and making sure you are only talking about the things they want to talk about. This is as much process as practice. When President Trump shocks the world with tweets about Taiwan, the Chinese are reading it two ways. First – the message is difficult. Second – the way the message was broadcast put our people in an embarrassing situation. The substance of a disagreement is always manageable; the process is not quite as flexible.

Verdict: Not good. The Trump administration will find that Twitter is even more unpredictable and high-impact in China than in other places.

He has his own set of buttons.

Integrity vs. Unpredictability

Trust has two meanings –

1) You can have faith in the ethical & moral code of another person – or 2) You can trust that you know the other person and can predict how they’ll behave under a certain set of circumstances.

Chinese negotiators care about #2, and this could actually work in Trump’s favor. Beijing never trusted the “human rights” agenda that US trade missions used to build into their proposals. Chinese entities are more comfortable talking output quotas than working conditions or sourcing policies.Verdict: This is Trump’s category to win or lose.

Rules vs. History

In 2016, a World Court tribunal at The Hague ruled that China was violating Philippine sovereignty by annexing parts of Scarborough Shoal. China responded by dismissing the ruling as though it never happened, and declaring that Chinese history takes precedence over the laws of men. Though the PRC does love its own bureaucracy, it doesn’t have much patience with other people – and that includes multi-lateral NGOs, like the WTO or World Bank.Verdict: If Washington really does have a secret master plan, then this could be where the chess-masters in the Trump Administration play out their deepest stratagems.
Or it could be where the trade train really goes off the rails. If the new administration in Washington systematically undermines existing trade & regulatory measures already in place, then China is not going to feel bound by the rules it has signed onto. (Many will say that China doesn’t feel particularly constrained by rules now. You might be right, but it could get worse.)
If Washington starts ridiculing Beijing by holding up broken treaties (or the twitter equivalent), then this will have an outsized impact that may spin out of control.

Alignment of Goals

The Chinese side of the table has always been clear on its goals – in many cases, far more so than the western side. This has also been a strong point for the new Negotiator in Chief. It seems unlikely that the US and China will develop a common set of high level goals, but it’s not impossible. (What that might mean for other stakeholders is an entirely different question.)
So far, however, this is a problem area. China gets extremely unfriendly when the topics involve sovereignty, territorial integrity, and status. The US media may have moved on to covering other things, but in China the Taiwan tweets and SE China Sea war leaks have already formed strong impressions.

Verdict: Still room for opportunity, but the outlook isn’t good.

Whatever the new administration’s strategic goals
for China and Asia, the twitter feed will have the final word.

Written by an American for Westerners negotiating in China, “The Fragile Bridge” dispenses with politically correct euphemisms and ivory tower pseudo-psychology. Knowing which 1,500 year-old philosopher uttered what esoteric phrase won’t help you safeguard your assets or keep your JV operating, but learning from the lessons of dozens of successful Westerners who have survived the China challenge just might.

]]>http://chinasolved.com/2017/02/man-standing-part-3-pov-counts/feed/02744Last Man Standing: China as Global Leaderhttp://chinasolved.com/2017/01/man-standing-china-global-leader/
http://chinasolved.com/2017/01/man-standing-china-global-leader/#respondTue, 31 Jan 2017 04:34:35 +0000http://chinasolved.com/?p=2738Takeaway: As the US rapidly disqualifies itself from global leadership, China will find itself shoved into a role it doesn’t want it and isn’t ready for. We will almost certainly see a more China-centric world. Here’s what it may look like.

China went from the scrappy challenger who looked like a long-shot for the title to the last man standing in a remarkably short period of time. They’ve emerged as the odds on favorite by default. The US has taken itself out of the global leadership game. Europe looks fragmented and weak — and may very well end up following the US into isolationism. Russia is a military force. China is the last man standing and leads by default.

What it will look like? This won’t be a Churchillian World Order or a Kennedyesque cult of personality – but it probably won’t be an Orwellian nightmare either.

Here’s what a China-centric world might look like:

Network. When the US and Europe were in the world order business, it was a two-pronged approach. Client states got schools, roads, and military bases, but they also got Hollywood, NBA, and Mickey Mouse. Beijing will send acrobats and Party slogans, but the bulk of Chinese cultural exports will be in the form of firewalls and political control techniques (operated by local governments). This revolution may be televised, but Xinhua is going to write the script. Forget about internet freedom, if you haven’t already. The major film studios are already getting used to making dual versions of blockbuster movies – one for us and one for them. K-pop and Anime are pretty inoffensive (politically). I don’t think people read books anymore. Expect to see global media products that don’t offend. More futbol; fewer self-righteous rebels battling imperial oppression.

Men in black. The PRC will favor limited bilateral agreement over broad multilateral agreements. Look for party officials and the private enterprises they support to negotiate key agreements with client states in relative secrecy. Chinese officials/businessmen prefer quiet back room deals, FTAs (free trade agreements), and comprehensive infrastructure-as-aid arrangements. Party officials will always be in the room, even if someone else is pitching the deal.

Revenge of the Nerds. China’s global leadership would be a more technocratic, government-to-government set of agreements. The PRC will favor suzerainty(form of feudal control where powerful state controls client’s foreign policy and international relations, but leaves domestic systems alone) over colonialism. For clues to a PRC-led world, examine places like Africa, Myanmar, Pakistan, and (more recently) Cambodia. It would be easy to overlook Chinese influence if you didn’t know what to look for. The rules, laws, customs, and daily life didn’t change for most people. But Chinese steel and heavy equipment is building the hospitals and infrastructure projects, and Chinese SOEs own and operate the concessions, in and around everything they are building. China will offer credit and technology in exchange for resources, access and infrastructure deals that keep employment numbers in China strong. Local laborers will dig the rail beds for new transport system; Chinese workers will make the steel and cement and locomotives.

How it will happen:

The Void. The US stops functioning as an international actor, and begins pulling out of global institutions – actively undermining existing global systems and protocols. No more US led global coalitions, treaties, or initiatives. The US edges closer to a self-styled Christian theocracy that even Europe doesn’t quite get. China ends up looking like the most rational and technocratic player in the game.

China will build on regional successes and government-to-government models that have worked such as AIIB. OBOR, and the free trade deals it has struck with ASEAN. Developing countries will be attracted by China’s approach of delivering credit and infrastructure without cultural interference or social restrictions.

The PRC will take on a new role as science leader in green tech. China already offers client states (Africa, SE Asia) soft loans that are used for dams, roads, and rail – look for more and more state aid to go to ambitious projects like solar and wind farms, telecom systems (with government controls built it), and other rungs on the tech ladder China is trying to climb. The Party likes big, landmark projects and full employment. These goals dovetail well with the global leadership position that China now finds itself in.

Written by an American for Westerners negotiating in China, “The Fragile Bridge” dispenses with politically correct euphemisms and ivory tower pseudo-psychology. Knowing which 1,500 year-old philosopher uttered what esoteric phrase won’t help you safeguard your assets or keep your JV operating, but learning from the lessons of dozens of successful Westerners who have survived the China challenge just might.

The Trump inauguration and British exit from the EU may very well usher in a new era of isolationism. Every 10 years or so, pundits like to ask if it is China’s turn to step up to take center stage in global politics. Even China’s foreign ministry has said it will reluctantlystep up – if it was necessary. The truth, however is that whatever the external situation might be, China simply has a set of BIG problems that will contain China to a regional power for the time being.

Still Regional, after all of these years

Branding

Innovation

Globalization

Branding:

Still all Party. Chinese corporate branding tends to be very vague (at least by international standards) or very “talking head” (think Alibaba’s Jack Ma or Wanda’s Wang Lianjin). It’s very hard to separate the image of China brands from the CCP itself, and that’s a problem that isn’t going away. Global brands like Apple, Disney, Mercedes, and L’Oreal have their own identity – so they can manage their international image at will. You have your own view about Google or BMW. You can make it personal. China Inc. simply doesn’t work as a consumer brand, and even the few Chinese privates with global heft don’t have much identity apart from their owners or the Party. (For a detailed examination of Chinese branding download BrandZ’s Chinese Global Brand Builders )

If China is going to project soft power throughout the world, it’s going to need private companies to carry persuasive, positive messages. America is successful when known for Coke and iPhones, not government agencies or military bases.

Verdict: China still can’t brand in a meaningful way outside of China, and this will hamper any attempt at global leadership.

Innovation:

China is getting much better at innovation, but it is still a work in progress. China Inc.’s economic success had its roots in OEM – and yeah, counterfeiting. Even if intellectual property protection in China is getting better, they are still an economy of followers and tweakers. Chinese brands adjust and refine. Green energy is the main area where they can break out and while it might happen, there hasn’t been much beyond hype so far. China, if it is really to take a leadership role, is going to need more Apples and not as manyXiaomis. Simply extending or modifying existing products, services, and methods isn’t going to do it.

As anyone who has spent a lot of time in China can attest, the problem isn’t that individual Chinese aren’t creative. The real roadblock is institutional. Until recently, you simply couldn’t get paid for intellectual property in China. That may be changing, but we’re not there yet.

Verdict: China may be on the cusp of an innovation & creative golden age, driven by Internet startups and green technology.

Globalization.

Nope. Lack of critical thinking and nimble management will make China a perennial also-ran. Even if global trade regimes break down completely, China is unlikely to slip comfortably into the lead spot. There are simply too many conflicting impulses, and too much party control. Tencent can’t be the next Facebook from behind a firewall. Developing economies may love the infrastructure and easy credit, but lack of international management skills limit China’s globalization efforts to governments – not consumers.

Once again, we have the Party problem. Without powerful brands or sexy new product classes to fire the imagination of global consumers, China will have to globalize via party leaders. Chinese learned about American culture from Mickey Mouse or Michael Jordan. Chinas main cultural ambassadors are still party leaders, like Xi Jinxing’s recent Davos trip. It’s a very positive trend, but it benefits the CCP more than private enterprises.

Verdict: China has been here before … and always shies away from the leap. In 2007 when the world financial system looked like it was heading for the abyss, some looked for China to step in and rescue the global system. China’s response at the time was, “we can do the most good by protecting our own economy”. Not wrong, but not global leadership.

Bottom Line

One Bridge, One Road

Does China have the opportunity to take on the mantel of global leadership? Yes. With populist movements forcing the western world’s gaze increasingly inward, the external situation would seem ripe for China to assume global leadership. But China lacks the strength, the will, and the imagination to project its system and ideals into the wider world. If the West really does pull back, look for China to focus on Africa and it OBOR connections and leave the global presence for another day.

Written by an American for Westerners negotiating in China, “The Fragile Bridge” dispenses with politically correct euphemisms and ivory tower pseudo-psychology. Knowing which 1,500 year-old philosopher uttered what esoteric phrase won’t help you safeguard your assets or keep your JV operating, but learning from the lessons of dozens of successful Westerners who have survived the China challenge just might.

Takeaway: The People’s Daily and other Xinhua-driven official news outlets offer Western decision-makers valuable insights into 1) CCP official policy and 2) Street level sentiment of Chinese public.

As we enter a new period of increasing tension and trade barriers, individual decision-makers

The news is fake, but the sentiments are real.

will once again have to scramble for real, actionable news about China. I want to point you in an unexpected direction: the Xinhua News Agency / People’s Daily. By now we have all learned about the dangers of filter bubbles and echo chambers (at least that’s what my Facebook feed tells me), so I’m offering up a cheap & easy means of getting direct access to genuine CCP official views. Here are the links:

Why read ChiCom propaganda?

Because it is great starting point for monitoring the Chinese half of US-China relations – and pengyou, we’ve got some monitoring to do. Even if the Trump administration doesn’t completely blow up the US-China trade relationship on purpose, they’re almost certainly gonna dent it a few times by accident. And while the NY Times has done great investigative work, the international business press is notoriously off base when it comes to gauging Chinese man-on-the-street sentiment. Since Xinhua is one of the main architects of that sentiment, it’s worth a weekly scan.

1. These are the official Chinese Party views that it wants disseminated to the public.
2. It’s a reflection of mainstream Chinese popular sentiment towards the rest of the world (if this isn’t the way they feel now, it will be in 6 months)

The International Filter-Bubble

The Chinese people you know aren’t exactly playing you, but they are packaging (and editing) their message for you.

Imagine that tomorrow a Chinese businessman or investor travels to NYC and San Francisco. He’ll meet with 20 counter-parties that are part of his extended network – who will all seem knowledgeable and familiar with Chinese business, culture, and economics. After a week, he’ll return to Shanghai with the impression that America is a pretty OK place to do business. Is he correct? Sure, about those people in those places. But if that’s the extent of his research, he’s going to get blindsided by larger trends.

That’s you in China. If you spend all of your time in Shanghai or Shenzhen – or speak exclusively with people from those regions – then you have a perspective that is probably 90% accurate for 0.1% of China.

There was a time when that didn’t matter much, but now is not that time.

Old Hands used to talk about “counting coal cars”. In the pre-Deng Xiaoping days, analysts had no trustworthy data about Chinese economic activity, so they had to resort to counting the number of coal cars rolling into Beijing as a proxy for economic activity. Now we have the opposite problem. There is so much data coming out of China – much of it tailored for a specific viewpoint – that we walk away with bad conclusions. Break out of the bubble and scan the official sources. Fake news, but real sentiment.

Written by an American for Westerners negotiating in China, “The Fragile Bridge” dispenses with politically correct euphemisms and ivory tower pseudo-psychology. Knowing which 1,500 year-old philosopher uttered what esoteric phrase won’t help you safeguard your assets or keep your JV operating, but learning from the lessons of dozens of successful Westerners who have survived the China challenge just might.